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WBA-Rite Aid deal is approved

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DEERFIELD, Ill. — Winding down a nearly two-year process, Walgreens Boots Alliance Inc. (WBA) has gained Federal Trade Commission approval to buy 1,932 stores, three distribution centers and inventory from Rite Aid Corp. for $4.375 billion in cash.

The transaction also includes the WBA’s assumption of related real estate leases and an option for Rite Aid to join Walgreens Boots Alliance Development GmbH, WBA’s drug group purchasing organization. Exercisable through May 2019, the option would enable Rite Aid to procure generic drugs at a cost similar to that of Walgreens for 10 years. WBA also will assume limited store-related liabilities under the new transaction.

With the amended deal, Rite Aid will retain 254 more stores than under the agreement announced June 29, which reduced the transaction sale price. The companies said the decision for Rite Aid to retain these stores stems from talks between Rite Aid and WBA and with the FTC.

In announcing the agreement in June, WBA and Rite Aid terminated the $14 billion Walgreens-Rite Aid merger deal and unveiled a downsized transaction in which WBA would buy 2,186 stores as well as the three distribution centers and inventory from Rite Aid for $5.175 billion in cash.

WBA’s original acquisition offer for Rite Aid in October 2015 had a total deal value of $17.2 billion. But after more than a year of negotiations with the FTC, the companies on January 30, 2017, announced an amended agreement valued at about $14 billion.

Under the latest deal, WBA is slated to begin the Rite Aid store purchases in October and complete them next spring. Plans call for the stores to be converted to the Walgreens brand in phases over time, WBA said.

Both the WBA and Rite Aid boards of directors have approved the updated agreement. The transaction doesn’t require shareholder approval.

“This is a significant moment for our company, and we are excited about the opportunities this agreement will deliver,” WBA executive vice chairman and chief executive officer Stefano Pessina said in a statement.

The deal will eventually give Walgreens about 10,100 U.S. drug stores, making it the nation’s largest chain drug retailer.

“Combining Walgreens’ retail pharmacy network with a strong portfolio of Rite Aid locations is expected to help us achieve enhanced, sustainable growth while enabling us to broaden our reach and provide greater access to convenient, affordable care in more local neighborhoods across the United States,” Pessina said.

The stores to be purchased are mainly in the Northeast and the South. The transfer of the distribution centers to Walgreens won’t begin for at least 12 months, WBA said.

After the sale, Rite Aid will have about 2,600 stores; six distribution centers; and its EnvisionRx, RediClinic and Health Dialog subsidiaries. Rite Aid said it plans to use most of the transaction’s proceeds to repay debt.

“Securing regulatory clearance provides us with a clear path forward to realize the benefits of this transaction,” chairman and CEO John Standley stated. “With a compelling and more profitable store footprint in key markets, enhanced purchasing capabilities and a stronger balance sheet and improved financial flexibility, we are well positioned to implement our plans to deliver improved results.”


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